U.S. lawmakers will question a trader named Keith Gill and the executives of Reddit and Robinhood about their roles in the GameStop frenzy at a congressional hearing later this week. However, some also have other concerns: whether China is involved.
Several Republican lawmakers on the House Financial Services Committee are planning to investigate Reddit’s ties to Chinese tech conglomerate Tencent and Robinhood rival Moomoo, according to a report by Politico. Moomoo is a wholly owned subsidiary of Futu Holdings, also backed by Tencent.
According to reports, these Republicans are concerned about possible manipulation by Chinese companies in inflating GameStop shares through the trading app Robinhood and some Reddit Day traders.
The report fails to make it clear why these lawmakers want to investigate these Chinese companies and what specific questions they want to ask during Thursday’s hearing, said Rep. Maxine Waters (D-Calif.), The committee chairman.
However, the GameStop hearing is taking place at a time when technonationalism is high in the US and China. Policy makers have imposed or tried to impose restrictions in order to accelerate the decoupling of digital platforms, supply chains and knowledge networks.
“We live in a time of increasing competition between Chinese technology and so-called Western technology,” said James Cooper, associate dean at the California Western School of Law, who served as advisor to the US State Department as advisor on emerging technologies.
He said the investigation into whether malicious Chinese actors manipulated GameStop’s price was “political theater”. Tencent and Moomoo did not respond to requests for comment at press time.
China focus
Aside from political theater, there can be a few reasons these lawmakers look at China. One of them is the possibility that private Chinese investors will be ready to get into the GameStop stock hype. The other is the continued influence of Chinese trading apps in the US
There are around 167 million retail investors in China who hold a total market value of over 28.5% of the Chinese stock market (approximately $ 200 billion). Chinese retail investors can trade GameStop shares through Chinese online broker platforms with US broker licenses such as Moomoo and Webull. Both Moomoo and Webull, major rivals to Robinhood in the US, are founded by former Tencent and Alibaba employees, respectively.
Webull became the second most popular app in the US when online brokers banned the purchase of GameStop and AMC Entertainment stocks. Both Webull and Moomoo have become alternative platforms for retail investors as Robinhood struggles with setbacks caused by its trading restrictions.
Webull started offering cryptocurrency trading services in 2020. In the past year, the number of brokerage clients has increased tenfold for more than 2 million users. While the current user base pales in comparison to Robinhood’s 13 million, Webull has drawn users away from its rival, according to a report from Bloomberg Businessweek.
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Retail investors appeared to have turned to Webull after Robinhood stopped trading certain stocks pumped by the Reddit group, including GameStop. However, Webull later stopped such transactions, claiming that his clearing company told her to stop opening new positions in certain stocks.
Legislative concerns about Reddit’s relationship with Tencent could stem from a $ 300 million Series D financing round in February 2019, when the Chinese company put $ 150 million in as the main investor.
Tencent’s funding was soon criticized by Reddit’s users who prioritize privacy and oppose censorship. However, some analysts think it is unlikely that Tencent will be able to control content on the platform.
Robinhood’s rivals
San Francisco-based Moomoo is part of Futu Inc.’s drive to expand its operations in the United States to ensure Futu’s success in mainland China. Founded by Hua Li, one of Tencent’s earliest employees in 2012, Futu is one of the largest online brokerage platforms in China. It will allow retail users in mainland China to trade Hong Kong and US stocks.
Futu Inc. is a registered broker-dealer with the US Securities and Exchange Commission and, according to a statement on its website, a member of the Financial Industry Regulatory Association and the Securities Insurance Protection Corporation (SIPC).
Futu achieved one of the largest Asian IPOs on the Nasdaq in 2019 and aims to be a major player in online brokerage services for retail investors around the world.
Li holds 40.2% of Futu’s equity with over 71% voting rights, while Tencent owns 30.3% of the company’s shares with 26.2% voting rights. This is based on a notification filed on April 27, 2020 by the Securities and Exchange Commission.
Webull is a subsidiary of Fumi Technology, which was founded in 2016 by Alibaba alum Anquan Wang in Hunan, China.
Webull complies with the same regulations as any other US broker and stores user data locally with an office in Lower Manhattan, according to the Bloomberg report.
Webull has voluntarily requested an ownership review by the U.S. Foreign Investment Committee (CFIUS), a body that is preventing some Chinese-owned companies from expanding in the U.S. for national security reasons, the company’s executive director Anthony Denier said in the report.
